Market Risk

Free CFA Level II lesson in Portfolio Management. 13 min read, ~1,942 words.

VaR is a threshold, not a maximum loss: at a given confidence level it says nothing about severity beyond the cutoff. Three methods: parametric (assumes normality), historical (empirical, backward-looking, limited by its window), Monte Carlo (any distribution, most flexible). Parametric VaR = portfolio value x z-score x sigma, with z-scores...